Proxy Tax

Proxy Tax

In the United States, a tax levied on the political or lobbying activity of certain tax-exempt organizations. Subject to certain restrictions, the proxy tax applies to organizations under section 501(c)4, 501(c)5, and 501(c)6. Generally speaking, this includes labor unions, civic groups, chambers of commerce, and similar groups. Unless the organization meets exemption requirements (usually meaning the organization is a veterans' group or volunteer fire department), it must pay the proxy tax on its lobbying efforts. The proxy tax rate is 35%. An organization may avoid the proxy tax if it establishes to the IRS that members do not deduct membership dues, contributions, or other similar amounts on their personal or business taxes.

A membership organization that was tax exempt under Internal Revenue Code sections 501(c) (4), 501(c)(5), or 501(c)(6) was liable for the proxy tax if the organization did not notify its members of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures, or if the notice did not include the entire amount of dues that was allocated.

An organization with more than $1,000 in gross income from UBI must file Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), and is subject to corporate tax rates on unrelated business taxable income.

A membership organization that was tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), or 501(c)(6) was liable for the proxy tax if the organization did not notify its members of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures, or if the notice did not include the entire amount of dues that was allocated.

Simplifying the Code will also eliminate the need for Band-Aid-like compliance measures that can impede routine, day-to-day business transactions and force law-abiding businesses to absorb the heavy proxy tax of additional record-keeping.

1) A membership organization that was tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), or 501(c)(6) was liable for the proxy tax in cases where it did not notify its members of the entire amount of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures.

By making low rates the cornerstone of the new, simpler system, Congress can make it easier for companies to comply and obviate onerous compliance measures that impede routine transactions and force businesses to absorb the heavy proxy tax of record-keeping.

Many charitable organizations are prohibited from earning any UBTI under their organizational charter, or would otherwise be disinclined to assume the administrative burdens of filing Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), and making tax payments on earnings from their investments.

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